NARRATOR: Thanks for joining this episode of the No. 86 lecture series, where we discuss the foundational principles of Property Law as well as current topics in the academic literature. Today’s episode features Eric Claeys, Professor of Law at Antonin Scalia Law School. As always, the Federalist Society takes no position on particular legal or public policy issues; all expressions of opinion are those of the speaker. PUBLIUS: In this episode, I want to explore issues related to ownership. What rights does ownership entail? What legal relationships arise in different contexts between an owner and other parties who may also have an interest in a property? First of all, what does it mean to own something? ERIC CLAEYS: Most of the kinds of property we know best from real life are things that we own absolutely. The fee simple absolute is the broadest range of rights that one can have in land. Absolute ownership refers to the broadest range of rights that somebody can have in an article of personal property, and absolute ownership describes what the kinds of rights that somebody has in a patent or in money. Rights of ownership can be split out along three dimensions. There's a right to control, a right to use, and a right to dispose. One of the main advantages of ownership is the fact that it gives the owner much clearer and less restricted authority to dispose of a resource than you'd have in a regime where everybody held use rights in a resource that were really primitive and limited. It's good that a system have rights to disposition. It means that when somebody produces lots of things, she can give away the surplus that she doesn't need and then trade it for other things. The right to dispose works out even better for people who aren't owners because then they can acquire or receive produce from people who have produced a lot. It also means that if you have a really well worked out system of disposition, then somebody who owns lot of a resource can then give little pieces of it. We'll talk in a bit about apartments. A landlord keeps the property for most purposes, but then assigns the rights to a specific property and specific apartments to the specific tenants. For all this to work then, there needs to be the case that owners can dispose. It needs to be the case that owners can dispose of all of what they own or some of what they own. It needs to be the case that for people who don't own something can receive all of what someone else owns or some of what those owners own. For all of that to work, then property needs a menu of pretty well recognized rights over the whole of a resource or over parts of it so that people know what they're giving away and others know what they're receiving. The law of disposition tries to fill in all those details. Normally, an owner should get the broadest rights to alienate a resource that seems consistent with everybody else's rights. That doesn't mean that an owner's rights are unlimited in every respect, but it does suggest that prima facie, presumptively they're real broad. It's good for an owner to be able to give away all of the rights because that lets the owner get the greatest value for an asset that she wants to sell. Then if the owner wants to give some and keep some, that lets the owner specialize. We'll talk some about the landlord-tenant relationship, but an owner might think, "I see this lot being used well for people to live on. I don't need to live on it. I'd like to make the money, and so I'll work out a deal. In this deal, other people can come and get the temporary occupancy of my apartments, and they'll satisfy their life needs by having a place to live. I'll keep the residual interest, and since I have the residual interest, I'll look at the long-term time horizon for this apartment building and make sure that it's kept up to code. I'll make sure that it's kept with all the kinds of amenities that tenants want. If at some later point it seems like this lot and this neighborhood call for higher and better uses, because I've got the residual interest in all the apartments, I get to make the decision later whether to change the use of the building." Letting owners keep the rights they want to keep and dispose of the rights they want to dispose, it lets owners keep the rights they think they're best situated to put to good use and assign away the rights they think they won't use. It's lets owners cooperate with others in relations where everybody gets what he or she thinks that she can do well and put the property to use for. PUBLIUS: Can you discuss an example where an owner keeps certain rights and disposes of others? What about leasing? ERIC CLAEYS: A lease is another property right that entitles somebody to occupy or to hold control over a resource without owning it totally. Leases can be had in land, and leases can be had in personal articles. You can lease land, lease an apartment. You can also lease a car. A lease is a property right that an owner conveys to somebody else, and the right conveys to the non-owner the right to occupy the land or to hold and to use the personal article for some period of time set forth in the lease. The landowner then gets the property back after the lease or the car or the other personal article owner gets the personal article back after the lease. Then a lease kind of implies a bunch of subsidiary responsibilities and rights as between the parties. The person who is the residual owner gets to inspect the property regularly to make sure it's being used for the purposes anticipated in the lease. Most of the time, the person who is the tenant gets the exclusive control and use over the land or the article, and the person gets to exclude others. Then leases usually are provided for in contracts. Then like when a lease is provided for by contract, then a lease is one of many terms in the contract, and the property right in a lease then affects the other contractual rights and responsibilities. You end up with a pretty sophisticated deal. In it, the landlord says, "You can have the apartment for the term of the lease, but you got to pay the rent. If you don't pay the rent, now the deal is off." Standard principles of contract change a little bit to give, sorry, the landlord the right to rip up the deal. Then there are other responsibilities that are filled in. These are called implied warranties. The landlord has to make sure that he's providing decent title to the land or to the car or the other personal article. This is called an implied covenant of quiet possession, and then, sorry, the landlord, if it's an article of land, needs to make sure that the tenant gets some use out of the property. This is an implied warranty of constructive employment, and then in urban areas, a landlord also has a responsibility to make sure that an apartment is reasonably safe and up to all building and safety codes. That's called an implied warranty of habitability. PUBLIUS: Leasing is a temporary arrangement. What about when an owner wants to permanently dispose of some or all of the property rights? I’m not thinking about selling property but rather giving it or willing it to family members or other parties. ERIC CLAEYS: One of the other main functions of a property course is to teach students a set of doctrines and concepts that are associated with the estate system. I don't know many professors who enjoy teaching it, and I know barely any students who enjoy learning it, but it's important to learn. Every system of property needs a set of standard forms that everybody knows, and these forms are the forms that owners go to to make clear what they're signing away, and recipients know to make sure they know what they're getting. The estate system is a system that developed in England in the Middle Ages to regulate property and land. The estate system hinges on a basic set of classifications. Assume that somebody who owns all of the property in a resource gives some of it away. The first question you'd want an answer to is to know who gets to be on the land next and for how long under what conditions? Then when you know what conditions there are on the land occupants' rights, then the next question to ask is who gets the land next? The system of estates refers to the system of possessory property rights that are smaller than a fee simple absolute. A fee simple absolute is the broadest form of ownership that somebody can have in property and land. Present possessory estates are estates that let somebody be on the land, occupy it, put it to a lot of uses, be the gatekeeper for it, but not have all the rights that a full on owner in fee simple absolute would have. Then when we ask what people get the land after the present estate holder, the rights that give people rights and land after the present estate holder, those are future interests. Those are property rights to come into possession at some later point after the present possessory state has expired or been terminated somehow. PUBLIUS: Why do we still need a system that was developed in the Middle Ages? ERIC CLAEYS: Students often ask, "Why are we bothering to learn rules that were worked out in 1200, 1300? There's a famous statute from 1536. Why are we learning these things?" There is two lessons here. One is a lesson that property scholars like to talk about as being about path dependence. Once a system chooses a sense of conventions, it's really, really, really hard to throw those conventions out and move to a new set of conventions. Imagine some legislature were to say, "It's just revolting that we're using land laws that were carried into effect in 1300. Let's get rid of those." One of them might say, "Okay, when is this going to take effect? Well, what about the fact that there are lots of leases that run past the time period where things are going to change? Are lawyers going to be able to replicate all the sophisticated conveyances they now know how to do? Are we all prepared to accept the risk that the lawyers are going to mess up the first few conveyances under the new system and the new terminology?" Nobody wants to take that risk. The lesson there is a lesson about path dependence. I guess there's just another lesson there about caution that when you have a system, even if the system is old and creaky, if everybody knows it, everybody is a little bit scared to move off of it to some brand new system because the brand new system might have faults that nobody has really thought through yet. It's worthwhile just as a lesson on legal design. If a system is working well enough, don't change it. Then it's worthwhile to learn that once you accept that the estate system is not going anywhere, even people who don't become real estate lawyers learn something from learning the estate system because lots of conveyances end up using terms, using concepts that are a lot like the concepts that drive the estate in the future interest system. You can have a lease for personal property. You can have an exclusive license for intellectual property. Those won't use all the terms in the estate system or the future interest system, but they'll use terms and concepts that mirror the estate and future interest system pretty well. If you've learned the estate system and the future interest system first, you're that much closer to understanding the way there'll be a severance of present possession and future use. PUBLIUS: Can you explain more about how the estate and future interest system works? Why do we need it? ERIC CLAEYS: The estate system gives people who own land broad authority to give the land to lots of different people, and it gives the owner the authority to divide the land up into present rights, a present estate, and one or more future interests. Again, the law does all this because ordinarily, we presume that landowners are going to dispose of land in ways that make themselves and the recipients better. Recipients won't take these estates for future interest unless they're going to be made better. Property rights again are rights that have to be ordered in a way that help everybody labor and give everybody clear notice about what rights they have in relation to other people. There have got to be some outer limits on the kinds of strings that somebody who owns land can put on the disposition of the land. There are going to be some situations in which we worry that some property rights that are conveyed are so strange or specialized that at some point down the road, these rights are going to make it hard for people to use land going forward. Property has a bunch of different doctrines that carry in effect this background policy norm that when people give their land away, they should not give the land away in ways that are going to restrain the use of the land far out into the future. Is there any perfect way to carry that policy norm into effect? No. What a system of law can try to do is to institute a few rules that knock out some of the future interest that seem especially likely to restrain the use of land going forward. The rule against perpetuities is one of the rules. A contingent remainder or an executory interest that operates like a contingent remainder is void unless it's clear that it's going to vest if at all within 21 years of any life and being. The idea is that when a conveyance is created, if the conveyance creates a contingent remainder or an executory interest that's got some condition in it a lot like the conditions in a contingent remainder, the law wants to ask, will we know within the lives of all the people who are alive when the conveyance takes effect and another 21 years whether or not this contingent remainder or executory interest is going to become a property right? If it always becomes a property right or it always washes out because the contingencies are not performed, then we're fine. We're not worried that this is going to hang like a cloud over title like 150 years from now and interrupt rights that other people have established. If we're worried that 50 years from now, 70 years from now, 100 years from now, somebody might hold most of the property but then have this contingency as a cloud on title, then we'll use the rule as a tool to wipe that contingent remainder, executory interest out of the chain of title and give the people then clearer title than what they have. What we've done is we have a system that prima facie lets owners dispose of what they want, but identifies a few really extreme future interests that might cloud title down the road, and it limits the right to dispose now to give the people who receive title later securer rights to control and use the land. PUBLIUS: What happens when multiple parties can legitimately claim ownership at the same time? ERIC CLAEYS: The estate of the future interest system splits property and land up over time. One or a few people have present occupancy, and other people have rights to take possession later. People can own property at the same time and then share it. Then you need a system of property rights that regulate the shared use of property. The system of co-tenancies does that work. The two main kinds of co-tenancies are tenancies in common and joint tenancies. Tenancies in common are kind of the backdrop, the preferred, the default regime for co-tenancies. In it, several people agree to hold land or some article in common. At that point then, they all have rights to access the resource and make some use of it. They then have to work out amongst themselves how they're going to use the resource, how they're going to share it, who's going to use it and when, if it's a big lot of land, who gets use where of it. Co-tenancy law doesn't work any of that out. The neighbors need to do so. Joint tenancies are a lot like tenancies in common. They have a few special features. There are more formalities to get into a joint tenancy. If people want to enter into a co-tenancy and they want it to be a joint tenancy, they need to satisfy several unities. There are several requirements. They have to get the same legal interest. They have to take by the same conveyance, and they have to take it the same time. If they enter into a joint tenancy, the joint tenancy creates a strange right and responsibility that you don't see in a tenancy in common. This is called the right of survivorship. A right of survivorship lets the person or the joint tenant who survives acquire by operation of law with no other conveyances necessary the interests of the other joint tenants who die. You might think that's a bad regime because it lets somebody lose her property right for nothing when she dies, but if you have family members, and they all want the last surviving person to get something without the property going through the probate system or the property being taxed, the joint tenancy system is a very effective way. Both joint tenancies and tenancies in common give people ways to share rights of present occupancy. They're not very good for spelling out what present occupants can do and how they have to cooperate. It's kind of taken for granted that present occupants can work it out. If they can't work it out, then the common law presumes that co-tenants are going to buy one another out. In extreme cases, co-tenancies and the statutes that have been legislated to carry them to effect all have ways for co-tenants to partition. In a partition action, one co-tenant goes to the court, "It's not working out. I'd really like to cash out." The court will then give that co-tenant a buyout or carve out some of the land and give the tenant that part of the land as a prorated approximation of the person's share of the co-tenancy. A system of property law needs a law of co-tenancies because property rights are not always exercised by people acting by themselves on their own property. Some people get gratification from working with other people on the same property, so a family farm, having a family residence, or like having a ranch that's going to be of benefit to a lot of different grazers. Property law needs some way for those people to cooperate with each other. Unfortunately, law isn't an institution that can know what's in the minds and the hearts of all the different people that it deals with. Co-tenancy law is pretty simple, and it works well if the people don't have specialized needs. If they do, then people really ought to write up a contract or a partnership or some much more specialized arrangement to spell out who gets to what and where. PUBLIUS: These situations of specialized arrangements can probably get very complex. Can you talk a bit about the doctrine of waste and how that is meant to protect the rights of co-owners or future owners? ERIC CLAEYS: When a system of property makes way for estates and future interest, it creates a new set of legal relations. If you have just one owner and a lot of non-owners, you need rules like trespass and nuisance, and those rules work out what duties people who don't own land owe to the person who does. As soon as you have a present estate holder and a set of future interest holders, now instead of having one owner, you have a lot of people who are equivalent to shareholders in a company. Those shareholders in a company or partners in a partnership, they owe responsibilities to each other and rights to each other. These are correlative rights and responsibilities. The same happens for people who have different property shares in the same estate and land. Excuse me. Then you need a set of rules to regulate what the present occupant can do with the land and what she may not do out of consideration for the rights that the future interest holders have. There are then a set of doctrines called doctrines of waste. When somebody holds a lawful present estate and land, the present occupant owes responsibilities not to waste the value of the land for the benefit of the future interest holders. There are three basic kinds of waste. There's affirmative waste. If the landowner does something that changes abruptly the uses of the land, that's affirmative waste. Sorry. The present occupant owes a responsibility not to engage in what's called permissive waste. The present occupant owes a duty that's kind of like a duty in negligence to take reasonable care that the land keeps the basic value it has now, that it not deteriorate. If the land deteriorates too much or if the present occupant forgets to pay the taxes or forgets other basic maintenance, then she becomes responsible for breaching the duty of permissive waste. There is a last and kind of strange kind called ameliorative waste. That fact pattern arises when a present occupant changes the land use but does so on the ground that the present occupant says, "I'm flipping the land use to a higher and better use," and the future interest holders say, "Wait, we like the land use that we had." Those cases are harder cases. Courts differ about what ought to happen. Some courts say that the future interest holders have a right to see the residence stay as a residence, and other cases say the present occupant may, if the present occupant can show, this residential property is better put to commercial uses. The present occupant will generate a lot of money by a sale, by selling the property, keeping some, and giving shares to the future interest holders. The present occupant may then flip the property to a commercial use. That's a messier area. In the basic forms, present occupants owe duties not to engage in affirmative, permissive, or ameliorative waste. PUBLIUS: One last question on ownership - can you discuss the necessity of a title and recordation system for establishing ownership? ERIC CLAEYS: We've been talking about rights to dispose of land. In a common law, people have broad authority to dispose of their land or their other resources. There are only a few general nebulous limits on those rights. There are doctrines making certain kinds of conveyances void as against public policy. Property rights are supposed to make rights and resources clear, and a lot of common law rules are not bad if you don't have anything else, but maybe they're not clear enough for really high value resources. For the most valuable resources, it ends up being worth everybody's time and trouble to have a very orderly, clear set of formalities for everybody to follow to make sure that they know who the sole owner is. If you go back and look at U.S. history, you look at the development of land in what's now Pennsylvania, Ohio, Illinois, there'd be lots of land where there's six different speculation companies that all said, "No, we're the company that bought the best title to this." If you're trying to get that land, you have to negotiate with six different speculation companies, what are you supposed to do? A titling system and a recordation system make title and land that much more certain. A titling system requires property and land not to come from common law rules like I've put a fence a here, or I'm plowing this land, and the plowing is the proof that I own it. Instead, the proof comes from a piece of paper that's been certified by the government as the piece of paper establishing that the person who owns the land marked within these metes and bounds is indeed the owner. You're trading the uncertainties of a common law regime and all the facts that require to prove occupancy for a statute that makes clear who owns what and what government office is the one that has the file with the pieces of paper, the official proof of title. This system creates costs that you don't have in a common law system. When people buy land in a system with a recordation statute, then they have to get a survey done. They may have to get insurance. They may have to have witnesses. They may have to hire a lawyer to process the papers. There are certain forms they have to follow, and those are all costly for the buyer and the seller. Those costs are meant to create a set of papers that are much clearer about title than the common law proxies would have been. In the U.S., there are three main kinds of recordation statutes, race statutes, notice statutes, and race-notice statutes. Sorry, let me step back. These statutes come into play when several people claim to have title on the same lot of land. Each of them gives priority to different people. In a race regime, the person who records title first always has the best title. If somebody records later, too bad for that recorder. Race statutes seem persuasive or attractive at first, but in some cases, the person who records first might seem sneaky. Imagine that there's A and B both buy a lot. Then A buys the lot. B knows that A already bought the lot, buys it again from the original seller, but then B records first. In a race regime, B would have title because B recorded first. To a lot of people, that seems intuitively bad. A notice regime tries to fix that problem. A notice regime gives title to the person who's recorded who doesn't know that there were earlier titles. It flushes out the title by the person who buys knowing that somebody else has got a better claim to title. Now notice regimes can be gamed also, because there's certain situations where the person might not know, but it doesn't seem fair for the person who doesn't know to take because the person didn't record. Then race-notice regimes try to deal with that problem by giving title to the first person who's clueless about alternative titles who also records. Each of them has their strengths and weaknesses because there are strange cases that make each look unattractive. The practicing lawyer just has to look up which statute is the statute enforced in a jurisdiction and make sure that her client follows that statute. PUBLIUS: A recordation system is just one of the areas where public concerns overlap with private property rights. In the next episode, Professor Claeys will discuss public zoning laws and takings. NARRATOR: Thank you for listening to this episode of the No. 86 Lecture series on Property Law. The spirit of debate of our Founding Fathers animates all of the No. 86 content, encouraging discussion and critical reflection relative to how each subject is widely understood and taught in law schools and among law students. Subscribe to the No. 86 Lecture series on your favorite podcast platform to have each episode delivered the moment it’s released. You can also go to fedsoc.org/no86 for lectures and videos on Federalism, Separation of Powers, the Judiciary and more. Thanks for listening. See you in class!